1 CE Management and Planning Diane Bishton – K229 Planning & Control Techniques

2 In this lecture We will Introduce a variety of Planning Methods that cover both quantitative & qualitative approaches Finish with an overview of some reasons for failure of the planning process

3 Introduction We have already seen that a whole range of Plans can be developed for different purposes within an organisation. Forecasting is only one precursor to Planning; we also need to use one or more practical planning methods to gather other information for input into the planning process & to construct the Plan.

4 A Variety of Planning Methods Planning Methods can be Qualitative or Quantitative, and take different views of the Organisation e.g. Gap Analysis, including Benchmarking Performance Indicators & accounting Ratio Analysis Network Methods including CPA & PERT APACS (includes SWOT Analysis) POISE

5 Gap Analysis with Benchmarking Planner sets long term Targets Compares Targets against Forecasts made on the basis of continuation of current activity & circumstances Analyses Divergences Implements ways to ‘bridge the gap’ Where might the Targets come from ? through determination of Industry Average & Specific Competitors’ Performance Measures (see Ratios later) - ‘Benchmarks’

6 Performance Indicators & Ratios Can be Results - or Effort-oriented Usually Quantitative, but can be Qualitative Typical Results-oriented indicators include accounting ratios such as Rate of Return, P/E Ratio, Stock Turnover etc. Effort-oriented indicators include : Rates of Absenteeism, No. of Complaints processed, No. of reports sent to Management (!), Employee development, through IiP for example

7 Return on Capital Employed Is the ratio of Profit / Capital employed Can use Gross Capital = Fixed + Current Assets Net Capital = Fixed + Current Assets - Current Liabilities Proprietors’ Capital = Net Capital - long-term loans Typical Problems : How to adequately value assets & determine ‘profit’ What about organisations with few assets ? What about ‘goodwill’ etc ?

8 Price / Earnings (p/e) Ratio Is Market Price of a share / Earnings per Share where Earnings per share is Annual after-tax profit / total shares (but usually just ordinary shares) It shows how many years it would take an investor to get back their investment (if they invested now) given continuation of earnings all paid out as dividend

9 Network Methods Networks are drawings showing all the ‘activities’ in a ‘project’ linked together by lines showing ‘dependencies’ between the activities. The ‘critical path’ (shortest path) through a network is the set of activities which, if delayed in any way, would extend the completion date of the whole project. There can be multiple critical paths, but any activity off those routes have ‘float’ - spare resource (time) that can be used up without affecting over all project time. Logical, supports work scheduling & monitoring

10 CPA Sees individual activity times as predetermined & constant Activity-oriented because Networks simply show the dependencies between the operations that must be performed Assumes that throwing more resources (hence higher cost) at an activity can reduce the time to do it, but the absolute minimum time regardless of resource cost (the ‘crash cost’) is the ‘crash time’ Choose the least cost solution from alternatives.

11 PERT Sees activity times as having optimistic (earliest), pessimistic (latest), most likely (‘average’) values. (See also its use as a qualitative forecasting method) Event-oriented because it includes timings needed to reach each stage or ‘node’ in the project. Assumes pessimistic completion times will be seen more often than optimistic ones

12 APACS (adaptive planning and control sequence) A planning model that includes S(trengths) W(eaknesses) O(pportunities) T(hreats) analysis 1) Produce a Statement of Objectives 2) Do SWOT analysis 3) Specify activities to achieve objectives 4) Evaluate consequences of alternative courses of action 5) Predict results of doing chosen actions 6) Issue orders to implement the plan(s) 7) Assess results 8) Modify plan when necessary

13 POISE (philosophy,organisation,information,strategy,efficiency) Organisation asks itself questions such as : What is the rate of technological change in our industry ? How does our output differ from our competitors’ ? Do we have a guaranteed supply of labour, raw materials etc ? And develops plans, or even strategies, to tackle unsatisfactory answers

14 Top-Down Planning Top management keep close control of the planning process, either by : Handing down plans as a fait accompli Expressing expectations & broad guidelines, then expecting these to be developed into plans

15 Bottom-Up Planning Departments or Sections generate their own plans on the basis of broadly defined objectives produced by a central planning committee The Corporate Plan emerges from co-ordination of those Plans developed by individual units

16 Reasons for Planning Process Failure (adapted from (Bennett, 1999 pp )) Concentration on short-term at the expense of long-term Craft v Academic conflict Marginalising & not supporting planning Confusing planning with forecasting Lack of or poor information, and excluding expertise Inadequate assessment of good & bad outcomes ‘Pet projects’ & enthusiasm not maintained Plans need to relate to definitive, coherent strategies. Is producing a plan a ‘box ticking’ exercise, or is it for real ?

17 Further Reading n Bennet Chapters 16 onwards n Butel et al Unit 9 n Wilsonmar.com Wilsonmar.com ä Same as last lecture